US expert for BIT to lure US companies to India

Ahead of Indian Prime Minister Narendra Modi's visit to the US this month, a US expert has suggested early conclusion of a Bilateral Investment Treaty (BIT) as it could be a game changer.

"A high-standards BIT has the potential to remove significant barriers to investment on both sides," according to Richard M. Rossow, Wadhwani Chair in US-India Policy Studies at Centre for Strategic and International Studies.

While BIT "is often referenced as an objective, rarely is it given its proper place as a potential game-changing agreement," he writes noting that BIT talks launched under President George W. Bush have progressed slowly.

According to Rossow, the deterioration in bilateral economic relations over the last few years has largely been driven by four main issues in India.

He identified these as "the slow pace of reform, particularly as it relates to foreign direct investment (FDI) caps; concerns about patent protection afforded to pharmaceutical products; the introduction of forced local manufacturing rules in some sectors; and an increase in cross-border taxation cases."

Concluding a high-standards BIT could have a substantial, positive impact on the investment environment-potentially "fixing" two of the four main areas of dispute-FDI caps and local manufacturing rules, Rossow suggested.

This is in addition to smaller benefits, such as reducing restrictions on the nationality of executives and a commitment to greater transparency in rule making, he wrote.

India has fewer incentives for wanting a BIT with the US, as the US generally places nominal restrictions on foreign investors, Rossow wrote.

"But there is one very big hook: investor protection as a means to attract infrastructure investment into India."

While "Modi is committed to building out India's inadequate infrastructure and needs capital and expertise," Rossow suggested "US investors are reluctant to invest in infrastructure directly."

This is so because all of about a dozen power projects built by US firms across India in the 1990s have suffered from payment security problems, he said.

"A BIT may provide a layer of much-needed protection that can lure US companies back in to support India's industrial drive," Rossow said.

(Arun Kumar can be contacted at arun.kumar@ians.in)